Economic Integration Breeds Foreign Investment: Evidence from the Portfolio Allocation of Investment Funds around the World

60 Pages Posted: 18 Mar 2011 Last revised: 7 Jul 2018

See all articles by Fariborz Moshirian

Fariborz Moshirian

Institute of Global Finance, UNSW Business School

Peter K. Pham

University of Sydney Business School; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Shu Tian

Asian Development Bank

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: March 1, 2017

Abstract

We examine whether expansions into new geographic markets help firms attract new international portfolio investors. Combining detailed location-level data of firms’ foreign operations and investment funds’ holdings across 47 countries, we show that foreign funds increase their portfolio allocation in firms that establish closer operational ties with funds’ home countries. This relationship is robust to alternative identification strategies using home-country tariff changes and new free-trade agreements. Domestic funds are less responsive to firms’ global expansions than foreign funds. Overall, our results indicate that firms’ cross-border economic linkages appear to propagate information that also drives their global financial integration.

Keywords: Integration, foreign investments, investment biases

JEL Classification: F21, F30, F36, G11

Suggested Citation

Moshirian, Fariborz and Pham, Peter Kien and Tian, Shu and Wu, Eliza, Economic Integration Breeds Foreign Investment: Evidence from the Portfolio Allocation of Investment Funds around the World (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=1787136 or http://dx.doi.org/10.2139/ssrn.1787136

Fariborz Moshirian

Institute of Global Finance, UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61 2 93855859 (Phone)
+61 2 94877519 (Fax)

Peter Kien Pham

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+61 2 9036 9103 (Phone)
+61 2 9351 6461 (Fax)

Institute of Global Finance, UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Shu Tian (Contact Author)

Asian Development Bank

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Manila, Metro Manila 1550
Philippines
63-2-6324915 (Phone)

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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